On or about October 17, 2013, the U.S. government will reach the national debt ceiling and Republicans in the House of Representatives are threatening not to increase it. This has NEVER happened before.The USA will instantly become a “deadbeat” nation, by refusing to pay back loans (redeem government bonds when they reach maturity).
This is the equivalent of trashing your family’s credit rating by refusing to make payments on a car loan, simply because you think you are spending too much money and need to cut back on your expenses. I think you would agree that this is not a smart move.
Without an increase in the debt ceiling, the U.S. government will only be able to pay its bills as fast as tax revenues come in. Having lost its ability to borrow, the government will have to “pay for everything with cash.”
So … what’s wrong with that?
From Paul Krugman’s NYT Blog (9/25/13) …
“If the feds are forced to slash spending, one way or another (and probably semi-randomly) to match receipts, that’s about $600 billion in cuts at an annual rate, or 4 percent of GDP. That’s a huge case of unintended austerity, quite aside from the disruptions, surely enough to push us back into recession if it lasts for any length of time.”
So, I throw the floor open to discussion:
(1) Is the GOP actually crazy enough to cause a default if they don’t get their way? (To kill “Obamacare.”)
(2) Will Obama and the Democrats, who are assumed to still be rational, weaken and give in to Republican demands? (As they have done, over and over again, in the past.)
(3) But, if the Democrats hang tough and the U.S. goes into default, will this cause a recession? Krugman says “Yes” but maybe, if you search the web, you can find a conservative economist who says “No.” (Try the Fox News website. I’m sure they have some nice, reassuring video clips on this topic.)
(4) And now, the most important question: “If the economy goes into recession again, how will this affect me (you) personally?” (No, you can’t move to Canada. They’ll probably seal the borders.)
– Nash 2.5 is a Trail Mix Contributor